Saturday, January 10, 2009

Goldman Sachs Sees Real Estate "Mega Crash"?

Courtesy of my friend and colleague James Marino, who is pointing point via Facebook note to a Silicon Alley Insider story, which actually took its cue from Curbed post, it seems the formerly behemothic, now subdued not-so-investment-bank has issued a report on the New York City real estate market. And the news, like seemingly all news these days, is just this side of suicide-inducing. Click on the Curbed hyperlink if you want to read the whole thing, but highlights are (and I quote):

Goldman: "New York apartment prices are very high relative to the observable fundamentals. Using three alternative yardsticks—price/rent, price/income, and affordability—we find that prices would need to decline by 35%-44% to return to the valuation levels seen in the 1995-1999 period, before the start of the recent boom."
Translation: Think 15% down is bad? There's another 30% to go. Wheee!

Goldman: "Under the (admittedly unrealistic) assumption that prices decline by the same percentage in each market segment, this type of drop would imply that a 1-bedroom condo whose price currently averages roughly $800,000 would decline to $480,000; a 2-bedroom condo would decline from $1.7 million to $1 million; and a 3-bedroom condo would decline from $3 million to $1.8 million."
Translation: Look! We can do math!

Goldman: "It is instructive to consider the potential implications of a return of relative Manhattan incomes toward the national norm prevailing before the Wall Street boom of the past two decades, either because of pay cuts in the financial industry or because of a possible out-migration of affluent individuals. From 1969 to 1986, Manhattan per-capita income averaged 2 times the national average, with no clear trend. Over the next two decades, however, it grew to 3 times the national average. If incomes fell back to the pre-1986 level of 2 times the national average—and if national per capita income remained unchanged—prices would need to fall as much as 58% to return to the 1995-1999 price/income ratio.
Translation: 58%, people. Commence serious heavy breathing... now.

Of course, it's the comments that are most hilariously awful of all, like the first one on Curbed: "Eh. I still can't afford anything even with a 58% drop. How about 70%? Then we're talking!"

Apples on the streetcorner time, people. Fasten your ratty seat belts in your choking Model T.

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